Lease agreements

4.3 Lease agreements

The lease agreements of the Group mainly relate to office premises. The durations of the lease agreements range from less than one year to fifteen years, and the contracts can usually be extended after the original date of expiration. The index, renewal and other terms of the different agreements vary.

In addition to real estate, the Group has additionally leased assets such as several land areas under substations and transmission lines and some 110 kilovolt transmission lines and circuit breaker bays.

Under its system responsibility, Fingrid is also obligated to maintain a rapid response disturbance reserve to prepare for disruptions to the power system. In order to ensure the availability of this disturbance reserve, Fingrid has, in addition to its reserve power plant capacity, acquired power plant capacity suited to this purpose as well as disconnectable loads for industry by long-term agreement. These are shown below under the Right-of-use agreements.

13. OTHER LEASE AGREEMENTS, € 1,000
  2016 2015
Rental obligations from lease agreements:    
In one year 3,536 2,643
In more than one year and less than five years 13,676 10,698
In more than five years 14,977 12,601
Total 32,189 25,942
     
Payment obligations from right-of-use agreements:    
In one year 7,601 8,017
In more than one year and less than five years 36,477 44,258
In more than five years 36,201 36,790
Total 80,278 89,065

Accounting principles

Lease agreements

Lease obligations where the risks and rewards incident to ownership remain with the lessor are treated as other lease agreements. Lease obligations paid on the basis of other lease agreements are treated within other operating expenses and are recognised in the income statement as equally large items during the lease period. Other lease agreements primarily concern office facilities, land areas and network leases. In accordance with the principles of standard IAS 17 Leases, those leases which transfer substantially all the risks and rewards incident to ownership to the company are classified as finance leases. The company has not leased tangible or intangible assets using finance leases.

Adoption of the IFRS 16 Leases standard, effective 1 Jan 2019

The company has started an assessment of the impacts of the adoption of the IFRS 16 standard. From the point of view of a lessee, the standard eliminates the current classification of leases as either operating leases or finance leases, and instead requires the recognition of practically all lease agreements as assets (right-of-use of the leased property) and the obligation of lease payments as a financial liability. Exceptions are possible for leases concerning short-term asset items of insignificant value.

Consequently, the standard will affect both Fingrid’s corporate balance sheet and income statement. The rental expenses now included in other operating expenses will be replaced by interest and depreciation to be recognised under operating profit. The liability will be amortized using the effective interest rate method, where the relative amount of interest expenditure decreases along with the loan capital. The expenditure is thus recognised in the income statement over the lease term according to a front-end-loaded schedule.

The cash flow from operating activities will increase, as the capital repayment in rental payments will be classified as cash flow from financing activities. The interest component will continue to be disclosed in the cash flow from operating activities.